WSJ: China Risks Economic Crisis Without Reforms

China could face an economic crisis if it does not implement major reforms in the next 20 years, the Wall Street Journal said Thursday, citing a report by the World Bank and Chinese government researchers.

The "China 2030" report — to be released Monday — warns economic growth is at risk of a sharp and sudden slowdown, which could trigger a severe downturn in the world's second-largest economy, the paper said.

The report makes a number of recommendations for restructuring China's economic growth model, including scaling back its vast and powerful state-owned enterprises and making them operate more like commercial firms.

It also urges Beijing to overhaul local government finances and promote competition and entrepreneurship, the newspaper said, citing half a dozen people involved in preparing the document.

The report, to be presented by World Bank President Robert Zoellick at a conference in Beijing, is aimed at influencing the next generation of leaders in China, who will begin to take power at the end of this year during a major transition, the paper said.

"The report lays out the recommendations for a development growth path for the medium term, helping China make the transition to become a high income society," Zoellick said earlier this week in a statement announcing his visit.

The report, prepared by the World Bank and the Development Research Centre under the State Council, China's cabinet, has been criticized by the Chinese regulator of state-owned companies, which is expected to try to block its adoption, the paper said.

Beijing prohibits or restricts foreign investment in strategic sectors such as auto, energy, finance, banking and telecommunications, drawing criticism from overseas competitors over the lack of market access and unfair treatment.

Domestically, privately owned firms often complain about the lack of competition and the fact they cannot access financing from commercial banks, which prefer to lend money to other major state-owned enterprises.

Chinese leaders frequently talk about the need to reform the country's economic model, partly by reducing its heavy reliance on exports and increasing domestic consumption.

But significant reforms have been slow as stability-obsessed leaders try to maintain rapid economic growth seen as essential to create enough jobs for the country's 1.3 billion people and keep a lid on unrest.